JAN
28
2008

Trolltech, Nokia and Numbers

So there's a lot of speculation floating around about the recent Nokia acquisition of Trolltech. There will be a lot more information to unfold in the coming months. The first thing I noticed was the price tag. Around €105 million. (I'm going to convert all Norwegian Kroner values to Euro since that's easier for me and most readers to think in.) That seemed low, based on some nebulous not-grounded-in-anything, notion of what I supposed Trolltech was worth, so I did a little digging.

Trolltech has been publicly traded since the middle of 2006, which means that they've been issuing performance reports. The first thing that hit me when I started sifting through them was to note that Trolltech has been losing money for the last three years. Looking over to the stock market, when they went public there was a fixed share price of €2. A year and a half later they're worth about half that. Nokia, interestingly, agreed to pay double the market rate for the shares (incidentally, exactly the same price as the IPO). Trolltech has around 50 million shares, with about 17m held by board members (mostly the two cofounders), 14.5m by investment firms and 8.5m on the market. (I didn't find documentation for the other 10. This may be related to the 50 million being a current figure and the last report of share holdings being from the end of 2006.) Trolltech's total revenue is around €25 million. Total losses were around €6 million for the last couple of years. Total cash on hand at this point is around €13 million. They've got around 250 employees worldwide.

So, those are the facts, now I'll get into a mix of extrapolation and wild guessing (and please note, that I'm definitely not an expert in this stuff):

There are reasons that a company will budget to run at a loss for a period of time to try to grow the business. Some of this was probably intentional. However, given the consistently decreasing stock prices, it seems that at least investors were not wholly convinced that it would bounce back to profitability in a timely manner. Revenue has been growing at a pretty consistent 40%, but in 2005 and 2006 costs doubled. Things leveled out a bit as of the third quarter of 2007, they'd only increased by 30% relative to the previous year. In a nutshell, Trolltech was hardly in the toilet, but performance wasn't great either.

Eirik Chambe-Eng (14% ownership) resigned this year and Haavard Nord (14% ownership) is based in California, and I would imagine for both of them, at this point in their lives, Trolltech fits differently than it might have a decade ago. Another 29% of the company is more or less purely interested in profit (investment groups), and you see, Nokia gave them a pretty sweet deal (again, double the market price). Being a public company and all, one would assume that at some point the founders would sell their stakes, and this way they got a much better deal than cashing them in on the market by converting them to common shares. If they had both sold their shares on the open market, with then the majority of the shares then outstanding, Trolltech could still have been bought out, via hostile takeover or otherwise.

So, Nokia. One thing to put out there, data-wise is scale. The total cost of the acquisition of Trolltech is about 0.1% of Nokia's value. At current levels Trolltech would represent 0.05% of their revenue and 0.2% of their workforce. (Compared to, say, Novell / SUSE, where value and number of employees were about 10%.) One thing to take from that is that this probably isn't that huge of a deal for Nokia. Their profits for this week will cover the Trolltech acquisition.

What that says to me is that it's really hard to speculate on what this means for Nokia. Again, comparing to Novell, where the acquisition of Ximian and SUSE signified a major shift in corporate strategy, I don't suspect this will be a major upheaval for Nokia. Qtopia could become their answer to Android, Trolltech might become their WebKit gurus, who knows. Nokia may even have a few ideas they're planning to try out to see how to integrate Trolltech's technology into the company and keep the ones that work, and write off the others.

One of the most interesting things to me is that Nokia will not have the need to run Trolltech as a profit center (though they may). Nokia makes enough profit every 2.5 hours to cover Trolltech's current annual losses. A really interesting thing to watch will be if and how over the next year or so Nokia attempts to market and place Qt (as opposed to Qtopia and WebKit). In some purchases, especially with this big of a ratio in scale, the resulting division is left more or less intact, in others, there's an attempt to bring them closer to streamline them to fit the company's overall goals. I could imagine, at least with the Android scenario of Qtopia, Qt potentially being licensed under a free-as-in-beer license as a counter to Android.

As far as ginormus organizations go, Nokia's been pretty good about working with the OSS community. We'll have to wait a few months for some more cards to be on the table before it's really clear if this ends up being a good or a bad thing. Like most changes, it'll probably have elements of both.